About the systemic approach. The systemic approach is the direction of scientific knowledge and the methodology of social practice, which is based on the discussion of the objects in systems. it is used as an instrumentarium, which directs the research to the substantiating the wholeness of the object, discovers various contacts in it and gathers them into the total complex.
The systemic approach in its essence is the concrete principles of the dialectical materialism, in the bounds of which, we can discuss the investment process the series of those operations (the kinds of activities), which is fulfilled at the beginning capital (the preface of the process). It increases the value and conditions a definite result (the exit of the process). It is possible to learn the investing process from the position of the systemic approach, because the investment process is an economical system and it has a preface – the complex position of this system (investment surrounding) and exit – the changes of the entering investments into the economical system. The result of investing process got at the exit, defines the development of the economical system, in which the process is going on, and gives in it rise to the rates of the economical growth.
Ruling the investing process. The investment process is realized by ruling. It is discussed to be such a strategy, which guarantees achieve maximum effectiveness and it leads every kind of activity to the maximal growth of the economical system. Ruling consists of the following active cycles:
1. the analyze of the current position of the investment process, in which consists of: the analyzes of the investment attractiveness and investment business, satisfaction of the requirements for investments of the economical system;
2. definition of the showing of volume needed by the investments and of the investment attractiveness, to which this volume is conformed;
3. Working out activities which provide needed position of the systems’ investment attractiveness;
4. The changes of the incomes in the investments of the economical system, which is provoked by the changes of investment attractiveness;
5. Changing of the parameters of economical system at the investors’ expenses, which exists in the changing of the rates of economical growth.
Permanent realization of this cycle improves the ruling system of the investment process and increases the defectiveness of functioning of the economical system.
The realization of the systemic approach is situated in the analyzing the investment process not only in the horizontal section (the ruling subject – investment attractiveness – investor – investment business – the volume of the investment – investment object – ruling subject), but also in the vertical one (the world comradeship – country – region – field – manufacture – physical person). Such discussion reduces the quantity of repeated activity of the ruling of investment process and gives the complex theoretical picture of the investment process.
For preparing and realizing effective investment policy it is important to define clearly and simply the criteria of estimating the investment situation formed in the country, economical fields and regions; also working out methodological apparatus adequate to the economical regalia and its successive usage.
The investment process (that is the process of realizing investments) has every feature of the system: there always is in it a subject (an investor), object (investment object), the connection between them (investment in the purpose of getting income) and surrounding, in which they exist (investment surrounding). It is characterized with a special structure and the opportunity of an exact identification between other economical process. It displays its features as a result of interaction with other systems, protects a definite conception and reflects the points of view, aims and values of the subject of the investment process. Connection is the system-forming factor, because it unites all other elements into one whole (pic. 1). the systemic approach gives an opportunity of exhaustive description of the investment process essence and defines fully its basic concept.
The investment process is defined by the formed interaction about situating investments between the investment subject and object for getting income, also the realized investing influence from the side of subject and ruling organs upon the object; and changing of the conditions of investment surrounding.
Place of the investment process in the system of social relations. The investment process doesn’t exist itself and it is always involved into the sphere of following level, that is to say that it must be discussed in the bound of the total approach – discuss the system in the sphere of the interconnections with other systems. This gives us an opportunity of describing the place and role of the investment process as in the separate sphere of the activity and also in the system of the social relations. Every subject is oriented towards the development and always demands the supplementing of resource and changing this or that feature. The orientation towards the supplementing this deficit with own forces, slows the economical growth, because it demands from the subject to provide amused activities and wasting the time the its basic resources on this. In the conditions of specialization, the reducing of own forces makes the subject search for the object, the features of which give him an opportunity of of filling the existed deficit with a minimal investments. The need of investments appears, when the potential of the chosen object does not satisfy the necessary criteria and needs a kind of outer participation for its development. The possibility of the investment development occurs when the resources owned by the subject and its features give the opportunity of needed influence of the object upon the demanded features of the object.
At the moment of fulfilling the investment, investor makes contacts with the concrete object. Under the investors influence the features of the investment object changes and then these changed features in the face of investment income influences upon the investor, changes its features, including – filling the resource deficit. After finishing the investment process, the subject and object begin new existence; consequently, the investment process gives rise to the diffusion of the object and subjects’ features.
The dynamic of the social development is defined by the development of separate spheres of the activity. If the revolutionary sudden changes of this or that sphere of the activity gives stimulus to the unseen before growth, this gives rise to the natural chain reaction of the development of connected to these spheres. If the evolution development of the spheres of activities takes place, its dynamics, as a rule, is defined by the least developed abilities. When the investments and investment income have different subject consistence, that is if they belong to the different spheres of activities, the various investment processes make these spheres inter penetrative. According to this, the logical ruled changing of their development dynamics take place. This provokes the natural chain reaction of the development of the interconnected spheres. Consequently, the investment processes give opportunity of making and keeping natural chain reaction of the interconnected spheres of the activities. These processes appear to be the fastening factor for the social development.
Showing the connections between the basic categories of the investment process give the opportunity of establishing dependence of the investment volume to the factors and conditions of the investment domain, that is the investment surrounding formed in the region.
The picture 1.4 may elucidate basic structural elements of the investment surrounding and the connections between them, which are shown in literature.
The interconnection of consisting comp
onents of the investment process. Such an approach reflects the most essential sides of the investment process, but doesn’t give us opportunity of taking in mind the influence of the current processes upon the investment surrounding and on the contrary – of the investment surrounding upon the investment process. That’s why we think important to discuss differently the interconnection of the consisting components of the investment process.
The investment attractiveness is a positive category in its context, and the investment risks participating in the process of forming this attractiveness – a negative one. That’s why it is important to turn the quantitative showings of the risks into the quantitative showings of the concept, which is essentially opposite to the concept of “the investment risk” during taking in mind the noncommercial investment risks, as a complex factor of the investment attractiveness. We must call such a concept (the antonym to the concept of the investment risk) “social-economical and economical security of the investors” or, in other words, investment security (consequently, on the macro-economical, regional, field and industrial level). The mentioned changing gives an opportunity of avoiding inter contrary influence upon the resulting showing – the investment attractiveness of two complex factors – the investment potential and noncommercial risks.
Exactly same way, every private factor of these generalized concepts have at the same positive quantitative [removed]with the help of the positive showing – for defining the final level of the field’s investment security), and also negative one (with the help of conceptually “negative” showing – for defining the final level of the noncommercial investment risks of the field).
The investment attractiveness of the social-economical system (SES) is defined the position of the investment potential and the level of the investment risk. The investment assets existed in the region – the real development of the investment business in the SES – is characterized with the intensity of the investments. It its turn, it is defined by the past, current and future investment assets. The past investment asset characterizes the intensity of the investments invested before and gives an opportunity of defining their future profitability, the quantity of the presumable competitor and the most profitable sphere for the capital-investment. The current asset of the investment defines the level of the system’s economical development and gives the opportunity for predicting the volumes of the additional investments and their possible profitability, also to define the position occupied by the investor in the market in the future. Future (expected) investment asset is the oriental for planning whole investment process: from the definition of future volume of the investments till ruling the investment surrounding of the SES – for getting the needed income flow of the capital. Analyzing of these three consisting components of the investment business gives the investor information about the level of competition ability at the SES investment market, also the tendencies of its development and the activities for reducing market.
The wholeness of the investment attractiveness and investment business makes the investment surrounding for the country, region, field, corporation (existed in the manufacture). Though it is important also to reflect reverse connection, that is the influence of the investment surrounding upon the investment business. For example, the current position of the investment surrounding defines the investor’s ideas and his/her activities towards future investments. Improving investment surrounding in the current period gives the stimulus to the development of the competition held between the investors for getting the rights for investment. Also it gives the stimulus to the competition held at the commodity and service market, which helps the lowing of the prices and raising the quality of the production. Parallel to these, the inflow of the investment resources takes place, which gives an opportunity for rational and effective distribution of the existed resources to the ruling organs of the regional development. It reduces the disproportion in the regional development, improves the living social conditions in the region, helps the development of the infrastructure and communications, changes the situation in the investment surrounding according to the demands of development of the regional economy.
The interconnection and subordination between the participating categories of the investment process is represented by the scheme shown in the pic. 1.5.
Taking in mind the peculiarities of the investment process, it mustn’t only be based on the usage of administrative-regulating activities, but also the usage of those economical models, which prove the necessity of this or that activity.
1.6. Subject – matter of investment process and its main stages
According to the said above, the investment process is the successiveness of the stages, motions and operations of the investment business provision. The concrete flow of this process depends on the investment object. Consequently, the division of the investment process into the stages is provoked by the kinds of the investments. We speak, of course about the real and financial investments.
The investment process consists of two main stages; they are (1) making decision about the investments and (2) Realization and exploitation of the investments. It is adopted to divide the first stage into several separate phases (under types), which characterize the real and also financial investments. The quantity of these phases may be different, but three of them are the most typical: a) underlining the goals of the investments; b) definition of the investment direction and c) selecting the concrete object of the investments.
Goals and directions of the investment. In the process of getting decision about the investments different goals are defined and reflected. The ascending goals are the formal ones, which are in the future used as the criteria of selecting investments. The formal goals come from the strategical firmness of the investment.
Working out the strategical direction of the investment business is connected with the defining equality of this or that form of the investments on the concrete stage of the perspective period and also with the definition of the direction of investment business including its branch consisting part. The priority selection of the investment forms at this or that stage by the investor is provoked by a number of inner and outer factors.
The functional direction is the most important from the inner factors, those are the basic kinds of the investor’s (manufacture, organization) activities. For example, basic direction of the investment businesses for the institutional investors is investments into the securities. The manufactures of the real sector of the economy, which perform the industrial activities, give priority, as a rule, to the investments into the material and nonmaterial assets.
The financial investment is realized mostly in the form of the manufactures’ (as concurrent, so partner ones) participation in ruling purchasing shared securities, or in the form of temporal placement of free money sources for speculative goals.
From other inner factors important role in selecting the investment direction is played by the strategical direction of the operational activity, size of the manufacture (organization), the stage of the investor’s vital cycle and others.
From the manufactures and organizations of the real sector of economy the growth of financial investments characterizes, as a rule, large-scale industries, which have more opportunity of finding the sources of placing funds into the investments, and those manufactures, which are at the stage of the so-called “ripeness”. More extended form of investments at the earlier stages is the investments in the material and nonmaterial assets.
Among those outer factors, which make an essential influence upon selecting the investment forms the most important are the rate of inflation and the percent rate formed at the financial market.
The formal goals may be the aspiration for increasing profit, widening the scales of the manufacture (activity), obtaining power and prestige in the society; also, solving the social-ecological problems, keeping and increasing the working places and so on.
These goals are not often defined distinctly, are not coordinated according to the priorities or are not verified at the subject of the ability of their realization. That’s why, it’s necessary to point out the real goal of the investments from the formal goals by establishing concrete purposed showings. For example, the formal goal – increasing profit – must be concretized in a number of showings, for which the definition of the achievement quality will be possible. Concretely, it may be the middle quantity of the profit for several years or the showing of net profit, or those other showings, which characterize the earned profit from the investment.
Formal goals of the investments make the decision of defining problems about investment directions easier. Mutual connected, independent and alternative (inter excluding) investments may also be among them.
Main stages of the investment process. According to the formation of investment portfolio, the investment process becomes importantly easier at the expense of reducing its stages. In the foreign literature dedicated to this problem, they differ following stages of the investment process:
1. Selection of the investment policy;
2. analyzes of the investment market;
3. re-inspecting the portfolio of the securities;
4. estimating the investment effectiveness.
At the first stage they define the investment goals and the volume of the necessary sources for its realization, also the quality of risk and profitability for every financial instrument. Selecting those financial assets of the potential kind, which may be included into the portfolio, fulfills this stage.
At the second stage, they concretize the rate of value of the securities’ separate kinds on the foundation of marketing conjuncture formed at the concrete moment and provide the prediction of the share rates’ dynamic of the concrete firm. Such kind of approach is called technical analyze. Basing on the got data they conduct fundamental analyzes. Its essence is analyzing the brought value of all those cash money flows, which is expected to get by the owner of the financial asset.
Third stage of the investment includes selecting concrete assets for the investors, also defining the optimal proportions between the assets in the bounds of investment capital. The bases of it are selection, selection during the operations and the diversification of risk according to total profile.
The fourth stage concerns the periodical estimation of the current portfolio according to the changing the investor’s goals and its deviation from the optimal portfolio. After this selling of the part of purchased securities and buying new ones become possible.
At the last stage they provide periodical estimation of the factual profitability and the level of risk and their comparing with the existed standards.
Main participants of the investment process and their functions. To the circle of main participants of the investments belong: state, regional and local organs of the government, manufactures and physical persons: they can participate in the process of investments from the side of demand and delivering.
In the conditions of the market economy the circle of the participants of investment process is importantly widened. The web of commercial banks, credit-commercial organizations, investment funds of companies and insuring companies have appeared, which make independently the investment decisions. But still, the state and governmental regional and local organs define their participation in the process of investments. It is represented by holding investment competitions, by selection and proving the investment projects, by licensing and quoting the production, and also by defining the quantity of the percent rate and taxation. The financial activities of the state, the organs of regional and local government as from the demanding, so the delivering side, influences essentially upon the behavior of the financial institutes and market.
Main distributor of money at the financial market is the population, because it gives much more to the investment process, then takes. Of course, it will not be said about the organs and manufactures of the executing government.
The researches of the foreign scientists U. Sharp, G. Alexander and G. Bailey show, that wholly the state and manufactures are net consumers of the money sources, that is that they use more sources then give. More concretely, many large-scale companies for realizing their long termed aims need enormous quantities of money for building factories, buying furniture, working out new products and so on. Besides, by realization active and difficult strategies of ruling cash cash masses, they appear to be main purchasers of securities. Such a situation is created on the side of the state, regional and local governmental organs, the activities of which is connected with the capital investments and guaranteeing current expenses.
The organs of executive government fill the insufficiency of the money sources by producing debt commitments and obligations, and companies by producing shares and other securities.
The factors defining the consistence of investment project participants and fulfilled functions. The consistence of the investment project participants and fulfilled functions provided by them, are defined by the following factors:
- the specifics of investment project, its volume, technological hardness and so on;
- compatibility of functions by the participants of the investment project during the realization of the project;
- financial status of the customer, who increases or reduces the influxing the financial structures in the realization of the investment project;
- providing the customer with the best material resources, building materials, techniques, furniture and so on;
- selection of the type of ruling the investment project (traditional or progressive).
Basic participants of the investment project. In the ruling the investment projects with the traditional type they differ its following basic participants: sponsors, constructor, distributor of the furniture, the consultant of insurers, legal adviser, the consultants of the taxation and financial branch, creditors and others.
Let’s discuss them in more details.
In a wide understanding, a sponsor is a guarantor; a physical or juridical person, who finances an economical project or a registration of social activities. Also, an orderer, an organizer of a large-scale project or arranger sponsor may be as commercial, so noncommercial structure.
As to the sponsor, as the participant of an investment process, we may call it an orderer, organizer, who connects then activities of every participant of a project, arranges discussions, analyses commercial suggestions of the constructors of financial structures or distributors, realizes marketing researches and selection of the financial partners. In the separate occasions, it becomes responsible for fulfilling such functions of the constructing engineering, as engineer-consulting service, projecting-construction and analytical-calculating works, preparing a technical-economical substantiation, organization and ruling of the manufacture, working out recommendations in the sphere of production realization. These reduce the quantity of the investment process participants.
Project-construction and construction organizations or individuals act the role of a constructor, that is the provider of the work. The constructor can involve other persons in the process of fulfilling the order, who become the sub-renters, and the constructor him/herself becomes the general renter. He appears to be the main fulfiller of the constructive lease agreement and is responsible the before the orderer for the fulfillment total complex of activities established in the agreement.
Distributor of the furniture represents the filial, foster companies or those other firms, which have signed at distributing furniture and providing services. If the manufacture registers an agreement with an orderer for a complex distribution of materials, building techniques and furniture to many of firms, it becomes the general distributor and answers for the whole distribution.
The insuring consultant is invited for displaying the insuring risk and estimating the quality of the project’s safety, also, for working out the appropriate recommendations. The juris-consult provides the preparations of the juridical documentation around the project, discusses wholly agreements and contracts.
The consultant of the branch of taxation questions analyzes the taxation situation existed in the country for realizing the project and also the taxation obligations of every participant, makes recommendations for minimization the taxes.
Financial consultant provides the selection of financial, credit and calculation conditions by combination of the alternative variant for the realization of the project. In the case of influxing foreign investors into the project, he must bring it to the appropriation with the existed international standards. This will make easier the status of the potential investors and creditors.
Creditors, as the participants of the investment process, lend money in different terms and conditions. Under these conditions, the creditor has a right of demanding from the debtor to return credit or fulfill other obligations. A state, bank, manufacture or a physical person, investment funds and others may be the creditors.
A traditional form of ruling the investment project, in the time of which the orderer carries out him/herself the functions of ruling, has several defects. First is that the most part of the orderers is not competent enough in every question connected with the project. It makes the level of the risk stronger during getting the ruling decision that gives rise to a number of expenses. Second one is that, the successful ruling, according to the experiences, requests the leader’s systematic participation in the investment process, because the orderer is not always able to do it. And third, this form of ruling the project is characterized by the comparative dispersion of phases and stages as in the time, so in organizing. All these gives rise to the additional problems in the provision of the s’ agreement of its every participant.
Overcoming the mentioned imperfection happens at the moment of moving to the progressive form of the investment project ruling. Its essence is that the leader (manager) of the project becomes the basic figure in the organization and ruling the investment businesses. This may be a construction or construction-projecting organizations’ especially prepared high-qualified specialist or an experienced leader. He/she provides a general ruling of the project including finances, personnel and the construction works.
1.7. Planning and selection of objects of investment process
The definition of re process of investment planning. The final phase of the first stage of the investment process is the selection of concrete objects of the investment, which is fulfilled in the process of planning investments.
They, as a rule, call the process of investment planning the process of forming such a portfolio (investment program) of the projects, which may be discussed as one of the alternative and mostly desired variant for achieving the investment object. Mostly using the mathematical models, which have no ability at all of reflecting every factor of the investment business, provides the planning of investment. That’s why the results of modeling don’t provide making such straight decisions, which would be the guarantee for the achieving the set object. The manufacture’s operative management basing on the results of planning and taking in mind other non-formalized factors provides getting the final decisions about those concrete objects of the investment, which must be included into the investment program of the manufacture.
The investment model is called such a mathematical model, with the help of which it is possible to estimate the effectiveness and resulting of the investments, as towards the set objects, so towards the sources for reaching it.
We must take into account the fact, that the real investments together with achieving the set objects cease quantitative changes as in the material-technical, so in the financial spheres. As to the financial investments, they are separated and touch mostly upon the financial side of the manufacture’s activities.
The investment business also may be isolated (separated) and interconnected. In the first case, in the process of investment business they discuss only alternative variant. Mutual connected investment planning also takes in mind the alternatives of getting decisions in the spheres of financing and organization. So the subject of isolated planning is working out the investment program. In the second case, the aim of the planning is industrial sphere wholly.
Any planning means distinctive period, during which the fulfillment and realization (exploitation) took place. This period is always reduced. It must be mentioned that the subject of investment planning terms is always conflicting. Basic question of the discussion is the ability of correcting the decisions under the influence of the phenomenon happened after finishing the planning section. Though this is a just demand the definition of the future investment decisions’ influence is possible only after these investments are realized.
Periods of the investment planning. In the process of investment planning, they divide the terms of planning into the intervals, which are called periods. The realizing decisions of one period are belonged to the beginning of end of the appropriate period. It’s important that this is not reflected at the conceptual side of the investment decisions and influences only the numbering of the period. Got results from the realization of the investments are expressed by the taxes, which are divided into delivery (for example, paying off the other industrial subjects by the investor) and incomes (for example, paid fee to the investor by other industrial subject).
The total sum of the payment during the concrete period equals to the sum of the realized delivery and incomes. If their balance is positive – that is the income overcomes the delivery or on the contrary.
The quantity of those periods during which the income-delivery of the sums takes place, is called either the term of the investment exploitation (in the case of the real investments), or the term of action (in the case of financial investments). This portion of time is either defined beforehand, or discussed as alternating quantity (at the time of getting investment decisions). The freed invested sources are called commonly disinvestments.
In the system of investment planning, the goal of the capital investment in this or that period of time may be the growth of property, increasing the income flow, making the investment profitableness higher and other showings, which characterize the ability of getting prolonged profit.
In the investment models of the planning, the volume of capital investment may change in the definite period of time, for which the plan is working out. During getting decisions, the priority is given to those projects, which guarantee the incomes from the realization of the investment in shorter time. Combination of the payments flow in this or that period of time is realized by the discount method.
Isolated planning of the investments. The isolated planning of investments is realized during the given budget toward the separate investment objects or the separate investment programs. The term of the investment (investment projects) exploitation may be discussed as a alternating or fixed parameters. The market of capital may be improved and also not improved. The separation of these markets is carried out by usage of distinctions between the percent rates of deposits and credits. Number of limitations of the financial resources in the isolated planning system may be belonged to any period of planning.
1.9. Interconnected planning of investments
Interconnected investment planning. The interconnected investment planning is realized in tight relations with planning the industry-financial activities. This relation is based on the complex formation of the cash flow taking in mind the fact, that like every activity the realization of every investment project needs the financial provision. This means that in the process of realization of the investment program, it is important to balance its financial parameters with the industrial and financial parameters of the manufacture, also, taking in mind the possible reductions. We mean, firstly the potential of own investment resources, the possibility of influxing loan capital, necessity of branch and regional diversification of the investment businesses, also, provision of effective balancing of inner balance, that is profitability, risk and liquidity of investment businesses.
The system of interconnection planning means the existence of many criteria during the selection of investment projects. It is based on ranging the goals and aims of the investment businesses in the system of the goals of business leading, according to either time, or meaning.
The differentiation of the criteria of investment projects’ selection takes place, as a rule, in the section of concrete forms of independent, inter-exclusive (alternative), and interconnected investment projects. Ranging of the goals requests the raging of criteria too. Usually, they use criteria of the net brought values and inner percent rate (inner profitableness) mentioned above, as basic criteria.
During the interconnected investment planning the system of reduction concerns basic and additional reductions. Basic reductions are the most important criteria of the selection. For example, if established basic criteria of the selection of investment projects are the showing of the project’s net brought value, the basic reductions may represent concrete meanings of the following showings: inner percent rate, the total risk level of the project, the terms of repurchasing the investment project and so on.
The additional reductions may be: the level of diversification of risk at the expense of regional and branch consistence; the value of the borrowed capital; the terms of realization of the investment projects; the size of the total volume of investment resources; the volume of the production and realization of the product and so on.
The realization of real projects. The concept of the second and third phases is essentially different from the real and financial investments, and it is stipulated by the peculiarity of their realization.
In the modern conditions the real investment is the foundation of investment businesses of the most manufactures. The realization of the real investment is characterized with a number of peculiarities; we can separate following ones:
1. the real investments are straightly connected with the basic activity of the manufacture, the widening of the assortment of the production and improving its quality with the help of involving the achievements of the scientific-technical progress. In other words, investment business and real investment processes are connected and condition each-other;
2. the real investments, relatively to the financial investments, are followed by bigger economical risks, which, in its turn, means the ability of providing higher profitableness relatively with the financial investments. Economical risks are connected with the peculiarity of the technological processes, factors of the material wearing out and so on;
3. Real investments are less liquid relatively with the financial ones. The reason for this is a tight purpose of most of the investments in the real industry and very often absence of the abilities of alternative industrial usage. That’s why it is extremely difficult to compensate mistakes made during getting decisions about real investments.
The forms of realization real investments. Real investments are realized differently by the investments in the in the basic capital, capital investments in the turnover assets and investment in nonmaterial assets. The realization of the capital-investment, in its turn, happens in several forms and, firstly, it is building of new manufactures, reconstruction of the existed ones, modernization, technical re-equipment, and also, purchasing total prosperity complexes.
Purchasing total prosperity complexes is the prerogative of the largest companies with such a policy, which is directed towards increasing its influence at different markets. Real investments of this kind guarantee growth of the total value of the manufacture’s assets, which is conditioned by the growth of abilities of financial potential and joint usage of the system of materials, reducing the level of the manufacture expenses and so on.
New building, usually, is connected with the investments in such modern manufactures, which increases the labour production and satisfies the request of the ecological security, also, means the building of new objects.
Reconstruction in the most cases requests moving to the modern technologies of the industry taking in mind the achievements of scientific-technical progress. As a rule, it is connected with the involving of the resource economizing technologies, moving of the production to the modern standards of the quality and so on. The reconstruction may touch upon the building of new objects.
Modernization mostly is connected with bringing to conformity the active part of the basic funds to the modern requests of realization the technological processes.
Technical re-equipment touches upon the changing and purchasing new furniture, mechanisms and basic complexes of the technical system for effective realization of the technological processes. It is not always possible to put a sharp boundary between technical re-equipment and modernization.
Investments in the turnover assets as a rule, serves for widening the turnover funds used by the manufacture. In the most cases it is realized following the capital-investment realization and this essentially is the result of realization capital-investments.
Investments in nonmaterial assets generally mean innovational investments and realized in two basic forms:
Ready scientific – in the form of given patents of technical production, scientific achievements, inventions, commodity marks and so on; With the help of independent machining of the scientific-technical production.
Most part of the real investment forms and kinds – the turnover assets, excluding the innovations of separate kind of the furniture, mechanisms and so on, – are realized in the face of real investments having appropriate business-plans.6 In the business-plans of the investment projects together with the traditional section the subjects of providing the needed level of liquidity of the real investment objects and minimizing the level of investment risks must be worked out and shown.
Organization of the investment project realization. For preparing the organization and realization of every needed plan documents, as a rule the leader is appointed. The most important plan documents are the calendar plans of the projects and their capital budgets.
The calendar plans are made for definite period of time – year, quarter, month or decade. The data of terms and volume of the realization the separate kinds of activities foreseen by the investment project are represented in them. The terms and character of the activities define the quality of detailing the calendar plans.
Fulfillment of the calendar plan is straightly connected with financing the activities of the investment project. For this purpose, the financial plan is worked out, which, usually is called “the capital budget of the investment project”. The volumes, terms and sources of the financing any kind of activities considered by the project in the section of separate phase of the calendar plan are substantiated and established in it.
Capital budget consists of two sections: capital expenses of the projects and influxing the needed sources for its realization. The capital expenses are the specified estimation of initial volume of the investment expenses taking into account the reserve of those financial sources, which are needed for recovering unexpected expenses according to the calendar plan.
The section of the “source influx” of the capital budget is the specification of volume of the investment needed resources for the project realization in the section of own sources of the investor, influxed sharing capital, leasing, banking credits and so on.
The synchrony of the income of the sources and the volume of investment expenses must be provided in the capital budget for realizing the works foreseen in the calendar plan.
Briefly about the investment risks. An important element of the project’s calendar plans and systems of sustaining capital budget taking into account the factors of the investment risk and working out the activities for their neutralization. The investment risk, as a rule, is discussed in the prism of possibility for getting unprofitable financial result. The forms of its displaying may be loosing the planned investment income or shortage for vagueness in the realization of investment projects. The investment project risk is a complex concept and units those various kind of risks, which are connected with the realization of investment projects.
Every stage of the realization of investments is characterized specific kinds of risks. That’s why estimation of whole risk of the project is provided on the foundation of aggregated facts according to the separate stages.
The realization of any investment project is in its essence a unique phenomenon for even one-typed projects. This circumstance makes the individual approach necessary, taking into account the specific information, which is connected with objective and subjective factors of occurring risks during the realization of the investment processes. The long is term of the project realization; the bigger is the vagueness of final results of its realization and, consequently – level of the risk.
We mist take into account the planned size of the cash incomes to get from the investment project depends on future status of appropriate segment of commodity market and effectiveness of commercial activity of the manufacture. It means that the investment risks are greatly conditioned by the commercial risks of a manufacture. In other words, there is a straight connection between the length of the vital cycle of the project and level of the investment-projecting risk. The completeness and trustworthy of the gathered information about every stage of the project’s realization, the level of qualification of the investing management defines greatly the substantiation of taking into account the various factors of the different types of risks.
The kinds of investment risks.Let’s name the basic kinds of the risks of investment projecting taking into account the specific conditions in Georgia.
The risk of inability of paying is in important connection with fulfillment of state obligations of the partners in the business, also, lowering the level of liquidity of the turnover sources.
The risk of financial provision of the project is connected with the late influx of the investment resources from the separate sources, the danger of incomplete financing because of increasing the value of the capital, which is needed for the realization of the project. It is in a straight correlation with the risks of inability of paying and inflation.
The risk of financial infirmity of the manufacture. It is characterized by the flow of invested own and borrowed capital and the incomes conditioned by the investment project and unbalancing of the flow of payments. This risk, together with the risk of the inability of paying is one of the most provoking reasons for bankruptcy of the manufacture.
The risk of inflation is connected with the possibility of devaluation of the expected incomes from the investment project and raising the value of capital expenses expressed by the nominal price. In the modern conditions the risk of inflation has permanent character and touches upon most parts of the operations of the project’s realization. Solving the problem of its taking into account and softening neutralizes this permanency.
The percent risk is related with the risk of inflation. It has own specific in Georgia, which is conditioned by the peculiarity of formation of the financial market and its being not developed.
The marketing risk is the risk of getting incomplete income from the investments on the stage of the project’s realization conditioned by the active circumstances at the expense of the volume and exploitation of the realization. The long are the terms of the project’s realization, the higher is the possibility of this kind of risk.
The criminal risk is conditioned, at the first place, by the absence of the appropriate defense of the rights of the investor’s privacy that appears in the economic of our country the most often.
For neutralization of the possible negative results of the investment projecting risks various measures and arrangement are worked out, which are grouped into the inner and outer measures. Inner measures of the neutralization of the risks concern the foundation of the various insurance and financial funds (reserves) and working out such measures, which will suppress possibility of raising this or that risk. This may be refusing using the low-liquidated assets and the borrowed capital of the important volume, also the mechanism of transferring the risks following the separate operations to the partners.
Foundation of the insurance and financial funds means the reservation of one part of the investment resources for getting over those unexpected negative results, which are not related with the actions of personnel and contractors of the manufacture. Of course, wasting of the part of the own sources of a manufacture, or, more concretely, “freezing”, makes important getting the loan at the market of finances for filling it, that makes the dependence on the outer sources of financing the investment projects stronger.
The outer methods of the neutralizing the projecting risks, in the first place, is insuring the project risks of separate kinds and guaranteeing by the third person. The object of the insuring is the property of the manufacture, which is used in the process of investment process; the responsibility of the manufacture and its personnel towards the third persons; insurance of the participants of the investment project’s realization. The mechanism of guaranteeing is oriented firstly towards the protection of the investors’ rights in case of changing the investor’s conditions.
The peculiarities of realization the financial investment. For the manufactures, which are not institutional investors, the basic direction of the investment business is the realization of the real investments. Herewith, when the conjuncture of the financial market gives the ability of getting significantly higher level of profitability at the invested capital, then the operation activity at the commodity market (the formed situation at the market of securities in Russia in 1995-1996 is a good example of this). Also, in case of existence of temporary free financial resources, the manufactures actively invest sources into the high liquidate financial instruments. Except this, the manufactures invest own capital other manufactures’ regulation funds for diversification and ruling other companies and organizations.
From the economical point of view, the financial investments are such instruments, with the help of with the solving the strategical and operative problems of effective placement of the capital in the country and abroad. The financial investments are mostly realized in the manufactures in the time of having free money sources. They appear in the face of outer investments (except the occasions, when the manufactures expiate their own securities, for example shares).
The most part of the manufactures realize the financial investments for the purpose of getting additional investment income (speculative income) from the usage of the free money sources. The concrete choice of the concrete instruments of the financial investments is wide enough even in the conditions of already formed market.
The level of profitability received from producing the investments into this or that instrument is in the straight relation with the level of risk. Higher is profitability, the higher is the risk of financial set-back.
The portfolio of the financial instruments. In the purpose of getting the desired level of profitability of the financial investments and the diversification of risks, the enterprises (investors) purchase financial instruments with different levels of profitability and risk, that is, in other words, they create the portfolio of financial instruments of specific character.
For the changing character of the conjuncture of the financial market, the process of getting desired level of the profitableness requests permanent monitoring of the various instruments’ profitability, risk and liquidity and also making the appropriate ruling decisions related with changing the portfolio of finances; it means the reducing or increasing the share of this or that financial instruments. Such kind of correcting is called “the restructuring of the portfolio”. It is the basic concept of the financial instruments’ operative ruling in the manufactures.
Basic financial instruments of the speculative portfolio of the finances the shared and debt securities, also, deposits and the currency valuables. During the monitoring process, depending on the type of the financial instruments, they take into account and analyze a lot of factors, which influence upon the levels of their profitability, liquidity and risk. From the factors which negatively influence upon the profitability of the shared financial instruments, the most important are:
· growing the level of taxation of the emitenti manufactures’ investment profit;
· the conjuncture changing of the volume of emitenti companies’ selling (it especially touches upon the oil companies);
· reducing the level of dividends for reducing the volume of the profit;
· reducing the price of net assets of the emitenti manufactures;
· speculative games of the participants of stock market.
The growth of the percent middle rate at the market; increasing the level of inflation; increasing the level of taxation of emitenti manufacture’s investment profit; degradation of the level of financial firmness of the manufacture; degradation of the pay ability of emitenti manufacture belong to the factors, which reduce the level of liquidity of the debt securities. The level of registration rate of the central bank; the firmness of the national currency; financial stability of the institutions of the deposit kind; changing of the percent middle rate at the financial market make and essential influence upon the profitability, risk and liquidity of the cash instruments.
According to the results of the investment market monitoring, they display the separate instruments of the speculative investments and also the tendency of the levels of profitability, risk and liquidity of the whole portfolio. Based on the received information, they make decisions about the necessity of the portfolio restructuring and its direction.
The investment resources during realization of the financial and real investments are used as in the cash, so in the natural form. The formation of the investment resources of the manufactures is connected as with the manufacture itself, so with the processes of gathering and keeping, which take place in the whole country. The rates and scales of the keeping and gathering the investment capital are conditioned by the level of the country development and also the level of the population’s profitability.
The process of formatting the investment resources in the manufacture is permanently working in the face of the incomes received from the basic activities and the activities not for realization, also by taking loans and others. The concrete quantity of those sources, which are used either for the investments, or the consuming needs, are defined by the finance-industrial plan of the manufacture. it depends greatly upon the values of their influx, the growth of the manufacture’s capital and its structure. If a large portion belongs to the sources in the structure, then the abilities of loaning are reduced. At the same time, the value of additional resources influx increases because of increasing the credit risk.
In the system of effective planning of usage and analyses of the financial resources it is very important to point out those various groups of the investments, which differ in specifics and request the usage of the adequate methods of ruling. They differ several characteristical features, with the help of which the classification of the investment resources takes place.
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